Mitigating the Impacts of the Current Foreclosure Crisis

The Asset Building Program at the New America Foundation and the National Council of La Raza co-sponsored Mitigating the Impacts of the Current Foreclosure Crisis as a forum to highlight ideas for a national policy discussion that addresses the immediate needs of families facing foreclosure and provide solutions utilizing local community strategies. U.S. Senator Jeff Merkley (D-OR) began the event stating his continuing belief that one of the most powerful asset building tools is homeownership and the home mortgage. Senator Merkley believes the foreclosure crisis was sparked by the corruption of the mortgage market and a failure of regulation. While improvements have been made to the mortgage system he lamented the state of many families caught in the wake of the crisis, saying “It’s as if you had a massive flood and everyone rushed out to repair the dyke, but did nothing about the families whose homes are flooded.” Merkley’s policy prescriptions included:

Improving the current loan modification programs, which he labeled “a colossal disappointment.”

Allowing bankruptcy courts to preside over foreclosures.

Further reforming the foreclosure process to allow for opt-out mediation, lease-purchase agreements and other “win-win” opportunities.

Providing all first-time home-buyers with a tax credit of up to $5,000 per household, to “pave the way for a healthy housing market in the future."

Two panels followed Merkley. The first panel examined what is happening on the ground level with families facing foreclosure and those in the field trying to assist them, and highlighted Washington’s inattention to foreclosure and housing issues. The panel included moderator Janis Bowdler, Deputy Director of the Wealth Building Project at National Council of La Raza, Wade Henderson, President and CEO, Leadership Conference on Civil and Human Rights, and Will White, Senior Policy Advisor for U.S. Senator Jeff Merkley. Both Henderson and White called for a comprehensive solution instead of a piecemeal approach. They highlighted improved regulation, the promise of the Consumer Financial Protection Bureau and the action of the state Attorneys General as hopeful signs for the future.

Reid Cramer, Director of the Asset Building Program at New America moderated the second panel which discussed policy ideas to mitigate the crisis. Panelists included Miriam Axel-Lute, Associate Director, National Housing Institute, Jim Carr, Chief Business Officer, National Community Reinvestment Coalition, Alon Cohen, Author, Foreclosure Mediation Series, Center for American Progress, and Adam Levitin, Associate Professor of Law, Georgetown University Law Center.

Axel-Lute described a solution that allows non-profit groups, governments and patient, mission-driven private firms to purchase and modify loans in distress. She highlighted three programs working on this solution at scale, including Mercy Housing’s Mortgage Resolution Fund in Chicago. Axel-Lute highlighted the program’s low public cost as appealing in the current political atmosphere.

Levitin argued federal bankruptcy courts should be used as one tool in the toolbox to reform mortgages. Bankruptcy courts are currently prohibited from considering housing assets. This approach, which has been alternately titled “cramdown” or “Lifeline Bankruptcy” can be used for things like restructuring debt and extending interest rates, allowing more homeowners to stay in their homes.

Cohen proposed leveraging an already existing process by turning existing, opt-out mediation into automatic, opt-in, mediation. This approach brings together the household facing the foreclosure, the financial servicer and a third party mediator to help the two reach a settlement. In practice, this approach has yielded significant positive outcomes.